The Economics of Happiness, Part 4: Are Rich People Happier than Poor People?

Continuing on the theme of the relationship between income and happiness (previous posts: 1, 2 , and 3), let me show you what Betsey Stevenson and I learned when comparing the happiness of rich and poor people.

Let’s begin with the most recent data from the 2006 General Social Survey, which asked: “Taken all together, how would you say things are these days?”

It sure seems like the rich are more likely to be “very happy” than the rest of us. Is this a big effect? In 2005, Robert Frank argued:

When we plot average happiness versus income for clusters of people in a given country at a given time, we see that rich people are in fact much happier than poor people.

It’s actually an astonishingly large difference. There’s no one single change you can imagine that would make your life improve on the happiness scale as much as to move from the bottom 5 percent on the income scale to the top 5 percent.

Let’s go ahead and draw the plot that Frank envisions, using all of the data from the 2006 survey:

Here’s the key point:

By comparing rich and poor people, we estimate a happiness-income gradient that has a slope that is similar to what we saw when we compared rich and poor countries.

OK, that’s the United States, what about other countries? We estimated the well-being-income gradient for over 100 countries in the Gallup World Poll. Rather than show you dozens of separate coefficients, we’ll let a picture tell the story (and let me admit, I love this graph).

The arrows in this figure show the slope of the well-being-income gradient for each country, while the dots show the average level of happiness and G.D.P. for each country. The dashed line shows the best fit through these dots.

The fact that the arrows all have a similar slope to the dashed line suggests that comparisons of rich and poor people yield very similar conclusions to comparisons of rich and poor countries. In the full paper, we document that this finding holds for many different datasets.

Why do we emphasize this finding?

Because it stands directly at odds with a key claim of Easterlin (see p.106 to 107):

… the happiness difference between rich and poor countries that one might expect on the basis of the within-country differences by economic status are not borne out by the international data.

Tomorrow I’ll describe what we learn from comparisons of countries through time.